International Paper is adding diesel fuel to an existing alternative fuel developed in the 1930’s.Using diesel it would not otherwise have used as an additive IP is reaping millions in tax credits.
A change in tax laws under the Bush transportation bill in 2005 allows for tax credits for alternative fuels .One feature is a 50 cent a gallon tax credit for using fuel mixtures. This is blending of taxable fuels and alternative fuels (like hamburger helper for traditional fuels,See:EU moves to curb ‘splash and dash’ biofuel scam) to encourage new development of alternative fuels .International Paper and another paper company,Verso are receiving this large tax credit for adding diesel to a processed fuel source(black liquor)that has been employed for years ,since the 1930’s in fact. The process is described as “a neat, efficient process that's cost-effective without any government subsidy.” For a one month period IP received $71.6 million and it is said that it could be a billion dollars in cash per year .IP stock rose 12% on this news.
IP is gaining so much money from this credit and fears that the loop hole will be closed that they have been running full tilt anticipating the credit may be closed off to them. In fact, the money to be gained from exploiting the tax credit so dwarfs the money to be made in making paper--IP lost $452 million in the fourth quarter of 2008 alone--that the ultimate result of the credit will likely be to push paper prices down as mills churn at full capacity in order to grab as much money from the IRS as it can.
Gaming the system the resulting overproduction,and recession has consequences:
TICONDEROGA,New York — International Paper's Ticonderoga mill is closing for two weeks in May due to a lack of orders. The shutdown will affect most of the mill's 600 employees, mill Manager of Communications Donna Wadsworth said Thursday.
She said workers will be given options on how they want to take the time off, including using vacation time or unpaid leave.
Mill Manager Chris Mallon said he knows the shutdown will cause anxiety.
The author of the tax credit article makes a very timely and worrisome point ……….
Christopher Hayes at The Nation Whether or not Congress gets around to turning off the spigot, the episode is a useful reminder of the persistently ingenious ways the private sector can exploit even well-intentioned legislation. Considering that the success of the Treasury's recently announced plan to rescue the financial sector depends, in part, on the private sector not gaming the rules, the black liquor story seems particularly germane.
The Process:
Since the 1930s the overwhelming majority of paper mills have employed what's called the kraft process to produce paper. Here's how it works. Wood chips are cooked in a chemical solution to separate the cellulose fibers, which are used to make paper, from the other organic material in wood. The remaining liquid, a sludge containing lignin (the structural glue that binds plant cells together), is called black liquor. Because it's so rich in carbon, black liquor is a good fuel; the kraft process uses the black liquor to produce the heat and energy necessary to transform pulp into paper. It's a neat, efficient process that's cost-effective without any government subsidy.
It's unclear who first came up with the idea—Ann Wrobleski, IP's vice president for global government relations.told me it was "outside consultants"--but at some point last fall IP and Verso, another paper company, formerly a part of IP, began adding diesel to its black liquor and applied to the IRS for the credit. (Verso nabbed $29.7 million at just one of its mills in the final quarter of 2008 for its use of mixed fuel.)
Despite the obvious contrivance of the procedure, Wrobleski is unapologetic: "The credit is supposed to encourage the use of green fuel." Sure, I said, but isn't it a bit weird you're now adding diesel fuel to the process in order to take advantage of it? "It is what it is," she said.
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